Mutual fund performance in Trinidad and Tobago

The mutual fund industry in Trinidad and Tobago has experienced spectacular growth in the recent past, which has catapulted the issue of mutual fund performance measurement and evaluation into prominence in the financial sector. Performance evaluation is critically important to the future growth and development of the sector because mutual fundsÂ’ past performance is perceived as strongly related to future performance and therefore a major determinant of investorsÂ’ choice between mutual funds or the choice between a mutual fund and some other investment alternative. This has also attained prominence due to the perception that mutual fund returns are calculated in very subjective and arbitrary ways, which are susceptible to being manipulated to give an overly positive and biased picture of performance. Credible, objective and accurate performance evaluation is also important to all major stakeholders in the fund based on their incentive structures. In spite of the growing importance of these issues there has been little or no research on these issues in the Caribbean. This paper attempts to fill this gap by evaluating the performance of individual growth and income mutual funds in Trinidad and Tobago using risk adjusted performance measurement methods to determine whether funds outperformed the market benchmark and to distill some policy recommendations for appropriate performance measurement and evaluation standards.